CEDC Decides against Nemiroff Acquisition
OREANDA-NEWS. July 09, 2010. CEDC has decided not to use proceeds from the sale of its distribution business in Poland for the acquisition of Nemiroff. The proceeds from the sale of those Polish holdings are instead to be used to reduce leverage and to maximize shareholder returns through a potential share buyback. The sale of the distribution business should be complete in August, with proceeds amounting to PLN400m (USD149m), reported the press-centre of OTKRITIE Financial Corporation.
View: Management’s decision against acquiring Nemiroff might have been based on a high valuation of Nemiroff’s business. Instead, management opted to focus on increasing shareholder returns. Meanwhile, Prime Minister Putin’s recent pronouncement against a sharp increase in the excise tax on spirits should be positive for CEDC. Consequently, we see no fundamental changes to our forecast for the Russian vodka market in general, or for CEDC in particular.
Valuation and Action: CEDC trades on a 2010 EV/EBITDA of 9.8x, which implies a significant (46%) discount to EM peers. We reiterate our BUY rating for the stock.